SOLVED

31) What are the main elements of working capital? A) Inventories, accounts receivable, cash, mortgages payable and revolving lines of credit. B) Inventories, accounts receivable, cash, bonds payable and revolving lines of credit. C) Equipment, accounts receivable, cash, accounts payable and revolving lines of credit. D) Inventories, accounts receivable, equipment, accounts payable and revolving lines of credit. E) Inventories, accounts receivable, cash, accounts payable and revolving lines of credit. 32) Which of the following combination of factors may affect a firm’s investment in working capital? A) Interest rates, market demand, executive compensation, and the state of the economy. B) Interest rates, market demand, the seasons, and the state of the economy. C) Interest rates, market demand, the weather, and the state of the economy. D) Interest rates, market demand, the political environment, and the state of the economy. E) Interest rates, market demand, new high tech inventions, and the state of the economy. 33) Which of the following is a cost of holding too low a level of inventory? A) The company can raise its selling prices. B) Customer demand may increase. C) The cost of manufacturing may increase. D) Fuel costs may increase for shipping. E) Sales may improve if inventory is re-stocked. 34) Your company has been informed that a major supplier is doubling the order processing fee it charges customers from $10 to $20 per order. Meanwhile general interest rates have risen from 1% to 4% due to rapid economic growth in the economy. What else would have to occur for this data not to affect inventory planning by a company? A) Units sold would have to double. B) Prices would have to decrease. C) Total costs would have to decrease. D) The holding cost line would have to shift down. E) The minimum cost point would increase. 35) Coaxial Ltd. has an average collection period for its receivables of 50 days and an average payment period for its payables of 30 days. Depot Inc. has an average collection period for its receivables of 25 days and an average payment period for its payables of 55 days. Which of the following is the best conclusion to draw from this information? A) Coaxial offers payment terms of more than 50 days to its customers. B) Depot sells to well-to-do customers who pay early. C) Coaxial generates strong cash flows from government business. D) Depot pays cash for most of its purchases because of its long payment period. E) Neither company is doing a good job managing its cash flow. 36) The customers of Canoe Ltd. take 60 days to pay. Canoe’s annual sales are $10 million and bad debts are $35,000. To encourage earlier payment, Canoe plans to offer a cash discount of 2% for payment within 20 days. Canoe expects 60% of customers to pay early under the new plan but the remaining customers will take an average of 70 days to pay. Canoe’s line of credit charges 15% interest. Bad debts will be reduced by $30,000 and and Canoe can expect to save $10,000 per year in credit administration costs. Should Canoe implement the new credit policy? A) Yes because it will result in annual savings of $1,096. B) No because it will result in extra costs of $22,808. C) Yes because it will result in annual savings of $100,822. D) No because it will result in extra costs of $38,904. E) Yes because it will result in annual savings of $2,192. 37) ProLogic Chips Ltd. has an average inventory turnover period of 30 days, an average payment period of 40 days, and an average collection period of 50 days. SoftChip Inc. has an average inventory turnover period of 50 days, an average payment period of 70 days, and an average collection period of 40 days. Which company is likely to have greater financial risks? A) SoftChip because it has a longer operating cash cycle. B) ProLogic because its operating cash cycle is twice as long as SoftChip. C) Softchip because there are 30 days between paying it bills and collecting its receivables. D) ProLogic because there are 10 days between paying it bills and collecting its receivables. E) SoftChip because the ratio of payment period to collection period is greater. 38) Peaches Creamery Ltd. would like to reduce the average number of days it takes to collect its receivables from 60 days down to 30 days. Peaches thinks this can be accomplished by offering a 1% discount to customers who pay withing 30 days. Precisely what is a customer’s annualized cost of forgoing the discount? A) 6.1% B) 6.2% C) 11.1% D) 12.2% E) 13.0% 39) According to recent surveys, what is an important difference between managers of small and medium sized businesses in Canada and the United States? A) Canadian managers are able to react more quickly to changes because on average their companies are smaller. B) Canadian managers are better able to cope with late paying customers by delaying payments to their suppliers due to a different legal system. C) U.S. managers make better us of information technology because they focus more on understanding their information needs. D) U.S. managers have a more effective inventory management system because they have good planning and budgeting systems in place. E) Although 63% of Canadian managers prepare a cash forecast, U.S. managers have cash balances that are proportionately higher for small businesses. 40) Which of the following is the best way to reduce a company’s losses due to bad debts? A) Increase sales volume by lowering their prices to make their products more affordable. B) Do not grant credit to companies that use a bank overdraft as a source of financing. C) Manage the accounts payable so that they become an automatic source of financing. D) Direct more customers to purchase from their on-line website using PayPal.